PHX Energy Announces Strong First Quarter Results
CALGARY, Alberta, May 07, 2024 (GLOBE NEWSWIRE) --
*First Quarter Highlights*
· For the three-month period ended March 31, 2024, PHX Energy generated consolidated revenue of $166.1 million which is slightly higher than the consolidated revenue generated in the first quarter of 2023 and is the second highest level in the Corporation’s history. This achievement resulted from strong Canadian results that outpaced the industry trend and despite the 18 percent decline in the US rig count impacting the Corporation’s US results. Consolidated revenue in the 2024-quarter included $8.2 million of motor rental revenue and $2.8 million of motor equipment and parts sold (2023 - $10.9 million and $0.7 million, respectively).
· In the first quarter of 2024, adjusted EBITDA^(^1) was $35 million, 21 percent of consolidated revenue^(1), as compared to $37 million, 22 percent of consolidated revenue, in the same 2023-quarter. Included in the 2024-quarter’s adjusted EBITDA is $5.7 million of cash-settled share-based compensation expense (2023 - $1.4 million). Adjusted EBITDA excluding cash-settled share-based compensation expense^(^1) in the first quarter of 2024 was $40.7 million, 25 percent of consolidated revenue^(1) (2023 - $38.4 million, 23 percent of consolidated revenue).
· Earnings in the 2024 three-month period were $17.5 million, $0.37 per share, as compared to $22.4 million, $0.42 per share, in the same 2023-period.
· PHX Energy’s US division’s revenue in the first quarter of 2024 was $114.2 million, 9 percent lower compared to the $125.7 million in the 2023-quarter and represented 69 percent of consolidated revenue (2023 – 76 percent of consolidated revenue). During the quarter, the US industry activity declined which affected the Corporation’s US division’s results.
· PHX Energy’s Canadian division reported $52 million of quarterly revenue, 29 percent higher compared to $40.4 million in the 2023-quarter and the highest level in the last ten years.
· In the 2024 three-month period, the Corporation generated excess cash flow^(^2) of $7.4 million, after deducting capital expenditures of $29.6 million offset by proceeds on disposition of drilling and other equipment of $12.3 million.
· For the three-month period ended March 31, 2024, PHX Energy paid $9.5 million in dividends which is 24 percent higher than the dividend amount paid in the same 2023-period. On March 15, 2024, the Corporation declared a dividend of $0.20 per share or $9.5 million payable on April 15, 2024. There were no common shares purchased under the current NCIB in the three-month period ended March 31, 2024 (2023 - nil).
· As at March 31, 2024, the Corporation had working capital^(^2) of $88.7 million and net cash^(2) of $5.8 million.
*Financial Highlights*
(Stated in thousands of dollars except per share amounts, percentages and shares outstanding)
Three-month periods ended March 31, *2024* 2023 % Change
*Operating Results* *(unaudited)* (unaudited)
Revenue *166,123* 166,022 -
Earnings *17,454* 22,417 (22 )
Earnings per share – diluted *0.37* 0.42 (12 )
Adjusted EBITDA^(^1) *35,033* 37,000 (5 )
Adjusted EBITDA per share – diluted^(^1) *0.74* 0.69 7
Adjusted EBITDA as a percentage of revenue^(^1) *21**%* 22%
*Cash Flow*
Cash flows from operating activities *11,167* 3,905 186
Funds from operations^(^2) *26,141* 26,737 (2 )
Funds from operations per share – diluted^(^3) *0.55* 0.50 10
Dividends paid per share^(^3) *0.20* 0.15 33
Dividends paid *9,453* 7,636 24
Capital expenditures *29,640* 18,583 60
Excess cash flow^(^2) *7,431* 19,232 (61 )
*Financial Position * *Mar 31 ‘24* Dec 31 ‘23
Working capital^(^2) *88,679* 93,915 (6 )
Net debt (Net cash)^(^2) *(5,833* *)* (8,869 ) (34 )
Shareholders’ equity *222,310* 209,969 6
Common shares outstanding *47,488,005* 47,260,472 -
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*Outlook*
In the first quarter of 2024, the Corporation continued to generate strong operating and financial results on the back of two consecutive record years.
· We believe the declining US rig count has stabilized and this new level of activity will be sustained in the upcoming quarters. In the second quarter our US RSS activity has rebounded from the slower start at the beginning of the year. We believe that our US operations will continue to produce strong results and any future increases in the rig count will create an additional upside.
· During the first quarter, we made strides in our marketing strategy for our motor sales and rental division. We have established a separate brand, Atlas Downhole Technology, with experienced marketing and operations personnel now in place and dedicated to its growth. We believe that the steps taken in the first quarter and the large portion of our 2024 capital expenditures budget dedicated to Atlas will aid us in expanding this division’s market presence.
· Our Canadian operations continue to benefit from the addition of new technologies and the increase in our RSS related activity. Our team has successfully grown our market share in key Canadian basins and this is softening the impact of the typical spring break-up, as we have multiple clients whose operations are more resilient to the seasonal slowdown. We foresee the second quarter building off the success of the last two record quarters in Canada and being strong on a historical basis. We are cautiously optimistic for the third and fourth quarters in Canada.
· In the first quarter of 2024, we ordered a large portion of the planned capital expenditures to ensure we received delivery of items in a timely manner, which impacted the level of excess cash flow achieved. We believe in the future quarters the excess cash flow achieved will increase. We are committed to continue rewarding shareholders through our dividend and NCIB program as we remain dedicated to delivering value to our shareholders.
We are proud of our first quarter achievements and believe they are once again a testament to the strength of operations and technology.
Michael Buker, President
May 7, 2024
*Financial Results*
In the 2024 three-month period, PHX Energy generated consolidated revenue of $166.1 million which is marginally higher than the $166 million generated in the same 2023-period and is the second highest quarterly level in the Corporation’s history. This was achieved primarily due to strong Canadian results and despite the lower US rig count.
For the three-month period ended March 31, 2024, the Corporation’s US division’s revenue decreased by 9 percent to $114.2 million as compared to $125.7 million in the same 2023-period. The US industry activity declined 18 percent as compared to the first quarter of 2023, although the steady decline that occurred through 2023 did level off with the US rig count being flat when compared to the fourth quarter of last year. In line with lower US industry drilling activity, PHX Energy’s US operating days declined by 14 percent from 4,820 in the first quarter of 2023 to 4,168 in the 2024-quarter while average revenue per day^(^3) for directional drilling services improved by 4 percent quarter-over-quarter. The Corporation’s US motor rental and sales divisions generated $7.9 million and $2.8 million of revenue, respectively in the first quarter of 2024 (2023 - $10.2 million and $0.7 million, respectively). Revenue from PHX Energy’s US segment represented 69 percent of consolidated revenue in the 2024 three-month period (2023 - 76 percent).
In the 2024 three-month period, the Corporation’s Canadian division generated revenue of $52 million, which is the highest level since the fourth quarter of 2014 and is 29 percent greater than the $40.4 million generated in the same 2023-period. During the 2024-quarter, despite the flat Canadian industry activity, PHX Energy’s Canadian operating days grew by 23 percent to 3,858 days from the 3,135 operating days in the comparable 2023-quarter. Average revenue per day realized by the Canadian segment also improved by 6 percent over the first quarter of 2023. These results were largely driven by the Canadian segment’s growing Rotary Steerable System (“RSS”) activity and further expansion of its client base.
For the three-month period ended March 31, 2024, earnings were $17.5 million (2023 - $22.4 million), adjusted EBITDA^(^1) was $35 million (2023 - $37 million), and adjusted EBITDA represented 21 percent of consolidated revenue^(1) (2023 – 22 percent). Included in the 2024-quarter earnings is a $5.3 million provision for income taxes (2023 - $3.5 million). Included in the 2024 three-month period adjusted EBITDA is cash-settled share-based compensation expense of $5.7 million (2023 - $1.4 million). For the three-month period ended March 31, 2024, adjusted EBITDA excluding cash-settled share-based compensation expense^(^1) is $40.7 million, 25 percent of consolidated revenue (2023 - $38.4 million, 23 percent of consolidated revenue).
As at March 31, 2024, the Corporation had working capital^(^2) of $88.7 million and net cash^(2) of $5.8 million. The Corporation also has CAD $87 million and USD $20 million available to be drawn from its credit facilities.
*Dividends and ROCS*
On March 15, 2024, the Corporation declared a dividend of $0.20 per share payable to shareholders of record at the close of business on March 28, 2024. This is 33 percent higher than the dividend of $0.15 per share declared in the 2023-quarter. An aggregate of $9.5 million was paid on April 15, 2024.
The Corporation remains committed to enhancing shareholder returns through its Return of Capital Strategy (“ROCS”) that includes multiple options including the dividend program and the Normal Course Issuer Bid (“NCIB”). In the 2024-quarter, 70 percent of PHX Energy’s excess cash flow^(^2) was $5.2 million (2023 - $13.5 million) and $9.5 million (2023 - $7.6 million) was paid in dividends to shareholders. The decrease in excess cash flow was mainly due to higher capital expenditures spent in the 2024 three-month period. In the 2024-quarter, the remaining distributable balance under ROCS^(^2) was negative $4.3 million (2023 - positive $5.8 million). We expect that future cash flow will compensate for the negative balance in the quarter and anticipate the remaining distributable balance under ROCS to be positive in the latter half of the year.
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023
Excess cash flow^(^2) *7,431* 19,232
70% of excess cash flow *5,202* 13,462
Deduct:
Dividends paid to shareholders *(9,453* *)* (7,636 )
Repurchase of shares under the NCIB *-* -
Remaining Distributable Balance under ROCS^(^2) *(4,251* *)* 5,826
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*Normal Course Issuer Bid*
During the third quarter of 2023, the TSX approved the renewal of PHX Energy’s NCIB to purchase for cancellation, from time-to-time, up to a maximum of 3,552,810 common shares, representing 10 percent of the Corporation’s public float of Common Shares as at August 2, 2023. The NCIB commenced on August 16, 2023 and will terminate on August 15, 2024. Purchases of common shares are to be made on the open market through the facilities of the TSX and through alternative trading systems. The price which PHX Energy is to pay for any common shares purchased is to be at the prevailing market price on the TSX or alternate trading systems at the time of such purchase.
Pursuant to the current NCIB, no common shares were purchased by the Corporation and cancelled in the three-month period ended March 31, 2024 (2023 - nil).
*Capital Spending*
In the first quarter of 2024, the Corporation spent $29.6 million in capital expenditures, of which $24.2 million was spent on growing the Corporation’s fleet of drilling equipment, $4.1 million was spent to replace retired assets, and $1.3 million was spent to replace equipment lost downhole during drilling operations. With proceeds on disposition of drilling and other equipment of $12.3 million, the Corporation’s net capital expenditures^(^2) for the 2024-quarter were $17.3 million. Capital expenditures in the 2024-quarter were primarily directed towards Atlas High Performance motors (“Atlas”), Velocity Real-Time systems (“Velocity”), and RSS. PHX Energy funded capital spending primarily using proceeds on disposition of drilling equipment, cash flows from operating activities, and its credit facilities when required.
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023
Growth capital expenditures^(^3) *24,224* 9,955
Maintenance capital expenditures^(^3) from asset retirements *4,141* 4,857
Maintenance capital expenditures^(^3) from downhole equipment losses *1,275* 3,771 *29,640* 18,583
Deduct:
Proceeds on disposition of drilling equipment *(12,301* *)* (12,417 )
Net capital expenditures^(^2) *17,339* 6,166
As at March 31, 2024, the Corporation had capital commitments to purchase drilling and other equipment for $21.8 million, $18.6 million of which is growth capital and includes $11.3 million for performance drilling motors, $2.4 million for Velocity systems, and $4.9 million for other equipment. Equipment on order as at March 31, 2024 is expected to be delivered within the year.
The approved capital expenditure budget for the 2024-year, excluding proceeds on disposition of drilling equipment, is $75 million, which includes $5 million of carryover from the 2023 budget. Of the total expenditures, $47 million is expected to be allocated to growth capital and the remaining $28 million is expected to be allocated towards maintenance of the existing fleet of drilling and other equipment and replacement of equipment lost downhole during drilling operations.
The Corporation currently possesses approximately 768 Atlas motors, comprised of various configurations including its 5.13", 5.25", 5.76", 6.63", 7.12", 7.25", 8.12", 9.00”, 9.62", and 12.00” Atlas motors, and 118 Velocity systems. The Corporation also possesses the largest independent RSS fleet in North America with 64 RSS tools and the only fleet currently comprised of both the PowerDrive Orbit and iCruise systems.
*Non-GAAP and Other Financial Measures*
Throughout this document, PHX Energy uses certain measures to analyze financial performance, financial position, and cash flow. These Non-GAAP and Other Specified Financial Measures do not have standardized meanings prescribed under Canadian generally accepted accounting principles (“GAAP”) and include Non-GAAP Financial Measures and Ratios, Capital Management Measures and Supplementary Financial Measures (collectively referred to as “Non-GAAP and Other Financial Measures”). These Non-GAAP and Other Specified Financial Measures include, but are not limited to, adjusted EBITDA, adjusted EBITDA per share, adjusted EBITDA excluding cash-settled share-based compensation expense, adjusted EBITDA as a percentage of revenue, gross profit as a percentage of revenue excluding depreciation and amortization, selling, general and administrative (“SG&A”) costs excluding share-based compensation as a percentage of revenue, funds from operations, funds from operations per share, excess cash flow, net capital expenditures, net debt, working capital, and remaining distributable balance under ROCS. Management believes that these measures provide supplemental financial information that is useful in the evaluation of the Corporation’s operations and are commonly used by other oil and natural gas service companies. Investors should be cautioned, however, that these measures should not be construed as alternatives to measures determined in accordance with GAAP as an indicator of PHX Energy’s performance. The Corporation’s method of calculating these measures may differ from that of other organizations, and accordingly, such measures may not be comparable. Please refer to the “Non-GAAP and Other Financial Measures” section of this document for applicable definitions, rationale for use, method of calculation and reconciliations where applicable.
Footnotes throughout this document reference:
(1) Non-GAAP financial measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this document. (2) Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this document. (3) Supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this document.
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Revenue*The Corporation generates revenue primarily through the provision of directional drilling services which includes providing equipment, personnel, and operational support for drilling a well. Additionally, the Corporation generates revenue through the rental and sale of drilling motors and associated parts, particularly Atlas.
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023 % Change
Directional drilling services *155,058* 154,473 -
Motor rental *8,246* 10,860 (24 )
Sale of motor equipment and parts *2,819* 689 309
Total revenue *166,123* 166,022 -
For the three-month period ended March 31, 2024, the Corporation’s consolidated revenue was $166.1 million, relatively flat as compared to the $166 million in the first quarter of 2023 and the second highest level of quarterly revenue on record.
In the first quarter of 2024, the US industry rig count stabilized, with the average of 610 horizontal and directional rigs operating per day being virtually identical to the daily average of 608 horizontal and directional rigs in the fourth quarter of 2023; however, quarter-over-quarter the daily average decreased 18 percent from 742 rigs in the first quarter of 2023. (Source: Baker Hughes, North American Rotary Rig Count, Jan 2000 – Current, https://rigcount.bakerhughes.com/na-rig-count). In Canada, industry horizontal and directional drilling activity (as measured by drilling days) was 17,714 days in the 2024-quarter, only a 1 percent decline from 17,829 days in the same 2023-quarter (Source: Daily Oil Bulletin, hz-dir days 240331). Despite the US rig count driving an overall weakening in North American industry activity, PHX Energy’s activity levels held steady with consolidated operating days slightly increasing by 1 percent to 8,025 days in the first quarter of 2024 compared to 7,955 days in the same 2023-quarter. The Corporation’s US activity declined in line with the industry, whereas PHX Energy’s Canadian drilling activity outpaced the industry trend as additional market share was captured in the 2024-period.
Average consolidated revenue per day^(^3) for directional drilling services was relatively unchanged from the first quarter of 2023 at $19,322 in the 2024 three-month period compared to $19,420. During the 2024-quarter, both the US and Canadian segments realized improvements in average revenue per day^(^3) for directional drilling services. However, as PHX Energy’s Canadian activity increased as a portion of its consolidated activity in the 2024-period, a greater percentage of consolidated activity was at the lower average revenue per day for directional drilling services in Canada.
In the 2024-quarter, revenue generated by the Atlas motor rental division declined by 24 percent to $8.2 million from $10.9 million in the same 2023-period. The decrease was largely due to the lower US industry rig count. For the three-month period ended March 31, 2024, revenue of $2.8 million was generated from the sale of Atlas motors and parts (2023 – 0.7 million).
*Operating Costs **and Expenses*
(Stated in thousands of dollars except percentages)
Three-month periods ended March 31, *2024* 2023 % Change
Direct costs *129,044* 131,988 (2 )
Depreciation & amortization drilling and other equipment (included in direct costs) *10,319* 9,317 11
Depreciation & amortization right-of-use asset (included in direct costs) *849* 407 109
Gross profit as a percentage of revenue excluding depreciation & amortization^(^1) *29**%* 26%
Direct costs are comprised of field and shop expenses, costs of motors and parts sold, and include depreciation and amortization of the Corporation’s equipment and right-of-use assets.
In line with the consistent level of consolidated revenue and activity, direct costs in the 2024 three-month period were relatively the same level as the corresponding 2023-period, decreasing by only 2 percent to $129 million from $132 million in the 2023-period. In the 2024-quarter, depreciation and amortization expenses on drilling and other equipment increased by 11 percent mainly due to the volume of fixed assets acquired as part of PHX Energy’s 2023 and 2024 capital expenditure program. This increase was offset by lower motor repair expenses that largely resulted from the decline in Atlas motor rental activity in the US.
In the 2024 three-month period, gross profit as a percentage of revenue excluding depreciation and amortization^(^1) improved to 29 percent from 26 percent in the corresponding 2023-period. Greater profitability in the period was largely driven by the increased utilization of the Corporation’s premium technologies, particularly increased deployment of Velocity as a result of enhancements developed by PHX Energy’s Research and Development (“R&D”) department that better integrate Velocity and newly acquired RSS. Increased profits from the Corporation’s Atlas sales division also contributed to the improved margins.
(Stated in thousands of dollars except percentages)
Three-month periods ended March 31, *2024* 2023 % Change
Selling, general and administrative (“SG&A”) costs *21,017* 15,556 35
Cash-settled share-based compensation (included in SG&A costs) *5,710* 1,374 316
Equity-settled share-based compensation (included in SG&A costs) *100* 101 (1 )
SG&A costs excluding share-based compensation as a percentage of revenue^(^1^) *9**%* 8%
For the three-month period ended March 31, 2024, SG&A costs were $21 million, an increase of 35 percent as compared to $15.6 million in the corresponding 2023-period. Higher SG&A costs in the 2024-period were primarily due to greater cash-settled share-based compensation and rising personnel-related costs.
Cash-settled share-based compensation relates to the Corporation’s retention awards and is measured at fair value. For the three-month period ended March 31, 2024, the related compensation expense recognized by PHX Energy was $5.7 million (2023 - $1.4 million). Changes in cash-settled share-based compensation expense in the 2024-period were mainly driven by fluctuations in the Corporation’s share price which increased, and the number of awards granted in the period. There were 1,527,685 retention awards outstanding as at March 31, 2024 (2023 – 2,083,553). SG&A costs excluding share-based compensation as a percentage of revenue^(^1) in the 2024 three-month period was 9 percent as compared to 8 percent in the corresponding 2023-period.
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023 % Change
Research and development expense *1,202* 1,256 (4 )
For the three-month period ended March 31, 2024, PHX Energy’s R&D expenditures declined slightly by 4 percent to $1.2 million from $1.3 million in the corresponding 2023-period. During the 2024-quarter, the Corporation’s R&D department remained focused on key projects, particularly on developing supplementary technologies that would create value added capabilities within PHX Energy’s suite of premium fleet. The Corporation also remained committed in supporting new and ongoing initiatives to continuously improve the reliability of equipment and reduce costs to operations.
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023 % Change
Finance expense *334* 667 (50 )
Finance expense lease liabilities *541* 576 (6 )
Finance expenses mainly relate to interest charges on the Corporation’s credit facilities. For the three-month period ended March 31, 2024, finance expenses decreased to $0.3 million (2023 - $0.7 million) mainly due to decreased drawings on the credit facilities in the period.
Finance expense lease liabilities relate to interest expense incurred on lease liabilities. For the three-month period ended March 31, 2024, finance expense lease liabilities decreased by 6 percent primarily due to expired leases.
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023
Net gain on disposition of drilling equipment *8,886* 9,956
Foreign exchange gains (losses) *(129* *)* 23
Other income *8,757* 9,979
For the three-month periods ended March 31, 2024 and 2023, the Corporation recognized other income of $8.8 million and $10 million, respectively. In both periods, other income was mainly comprised of net gain on disposition of drilling equipment. The recognized gain is net of losses, which typically result from asset retirements that were made before the end of the equipment’s useful life. In the 2024-period, fewer instances of high dollar valued downhole equipment losses occurred as compared to the corresponding 2023-period which resulted in lower proceeds and gains. The Corporation will use capital expenditure funds, including the proceeds from disposition of drilling equipment, to replace this equipment and these amounts will be added to the capital expenditures for the remainder of 2024.
(Stated in thousands of dollars except percentages)
Three-month periods ended March 31, *2024* 2023
Provision for income taxes *5,288* 3,541
Effective tax rates^(^3) *23**%* 14%
For the three-month period ended March 31, 2024, the Corporation reported income tax provision of $5.3 million (2023 - $3.5 million). In the 2024-quarter, PHX Energy’s effective tax rate is 23 percent which is in line with the combined US federal and state corporate income tax rate of 21 percent and combined Canadian federal and provincial income tax rate of 23 percent.
*Segmented Information*
The Corporation reports two operating segments on a geographical basis throughout the Gulf Coast, Northeast and Rocky Mountain regions of the US and throughout the Western Canadian Sedimentary Basin. (refer to the “Changes in Material Accounting Policies” section of the Corporation’s First Quarter 2024 MD&A filed on Sedar+ for the change in operating segments).
*United States*
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023 % Change
Directional drilling services *103,406* 114,746 (10 )
Motor rental *7,925* 10,231 (23 )
Sale of motor equipment and parts *2,819* 689 309
Total US revenue *114,150* 125,666 (9 )
Reportable segment profit before tax *16,594* 15,923 4
For the three-month period ended March 31, 2024, PHX Energy’s US operations generated revenue of $114.2 million, a 9 percent decrease compared to $125.7 million in the 2023-quarter. The decrease in revenue was largely due to the lower US industry activity in the 2024-quarter relative to the first quarter of 2023.
In the 2024 three-month period, the US industry horizontal and directional rig count decreased by 18 percent with 610 active rigs per day as compared to 742 rigs per day in the first quarter of 2023, but remained flat when compared to the fourth quarter of 2023. (Source: Baker Hughes, North American Rotary Rig Count, Jan 2000 – Current, https://rigcount.bakerhughes.com/na-rig-count). The continued demand for PHX Energy’s premium technologies remained strong and created some resilience to the industry’s trajectory. The Corporation’s US directional drilling activity decreased by only 14 percent to 4,168 operating days in the first quarter of 2024 compared to 4,820 days in the same 2023-quarter and has increased by 1 percent as compared to the 4,114 days in the fourth quarter of 2023. The US division’s average revenue per day^(^3) for directional drilling services marginally improved by 4 percent to $24,812 in the first quarter of 2024 from $23,806 in the corresponding 2023-quarter.
In the 2024 three-month period, the US segment’s Atlas motor rental activity was weaker due to the softer market conditions. In the 2024-quarter, the Corporation generated motor rental revenue of $7.9 million, a 23 percent decrease from $10.2 million in the same 2023-quarter.
For the three-month period ended March 31, 2024, the US segment realized reportable segment income before tax of $16.6 million which is 4 percent higher than $15.9 million in the corresponding 2023-period. During the 2024-quarter, the technology enhancements developed to better integrate Velocity with RSS increased fleet utilization which contributed to reduced costs and improved profitability. Margins from the sale of Atlas motors and parts also contributed to the increased profitability in the 2024-period. For the three-month period ended March 31, 2024, PHX Energy generated $2.8 million of revenue from this line of business (2023 - $0.7 million).
*Canada*
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024 * 2023 % Change
Directional drilling services *51,652* 39,727 30
Motor rental *321* 629 (49 )
Total Canadian revenue *51,973* 40,356 29
Reportable segment profit before tax *8,674* 8,293 5
In the first quarter of 2024, PHX Energy’s Canadian operations generated revenue of $52 million, its highest level of quarterly revenue since the fourth quarter of 2014 and a 29 percent increase compared to $40.4 million generated in the 2023 first quarter. Strong quarterly revenue generated in the 2024-period was largely driven by growth in both the Canadian segment’s client base and its market presence as an RSS provider.
For the three-month period ended March 31, 2024, the Canadian division’s average revenue per day^(^3) for directional drilling services increased by 6 percent to $13,390 from $12,674 in the corresponding 2023-period. The Canadian segment’s operating days in the 2024-quarter grew by 23 percent to 3,858 days as compared to 3,135 days in the corresponding 2023-quarter. In comparison, industry horizontal and directional drilling activity (as measured by drilling days) declined by 1 percent to 17,714 days in the 2024 three-month period (Source: Daily Oil Bulletin, hz-dir days 240331). During the 2024-quarter, the Corporation was active in the Duvernay, Montney, Glauconite, Frobisher, Cardium, Viking, Bakken, Torquay, Colony, Clearwater, Deadwood, Ellerslie, Charlie Lake, and Scallion basins.
For the three-month period ended March 31, 2024, the Corporation’s Canadian division recognized reportable segment profit before tax of $8.7 million (2023 – $8.3 million). Despite increased revenue and activity, profitability marginally increased primarily due to higher equipment rentals associated with greater RSS activity and an overall increase in equipment repair costs.
*Investing Activities *
Net cash used in investing activities for the three-month period ended March 31, 2024 was $4.9 million as compared to $5 million in the 2023-period. During the first quarter of 2024, the Corporation spent $24.2 million (2023 - $10 million) to grow the Corporation’s fleet of drilling equipment, $4.1 million (2023 - $4.9 million) was used to maintain capacity in the Corporation’s fleet of drilling and other equipment, and $1.3 million was used to replace equipment lost downhole during drilling operations (2023 - $3.8 million). With proceeds on disposition of drilling and other equipment of $12.3 million (2023 - $12.4 million), the Corporation’s net capital expenditures^(2) for the 2024-quarter were $17.3 million (2023 - $6.2 million).
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023
Growth capital expenditures^(3) *24,224* 9,955
Maintenance capital expenditures^(3) from asset retirements *4,141* 4,857
Maintenance capital expenditures^(^3) from downhole equipment losses *1,275* 3,771 *29,640* 18,583
Deduct:
Proceeds on disposition of drilling equipment *(12,301* *)* (12,417 )
Net capital expenditures^(^2) *17,339* 6,166
The 2024-period capital expenditures comprised of:
· $11 million in downhole performance drilling motors;
· $11.7 million in RSS;
· $6.5 million in MWD systems and spare components; and
· $0.4 million in machinery and equipment and other assets.
The change in non-cash working capital balances of $12.5 million (source of cash) for the three-month period ended March 31, 2024, relates to the net change in the Corporation’s trade payables that are associated with the acquisition of capital assets. This compares to $1.1 million (source of cash) for the three-month period ended March 31, 2023.
*Financing Activities *
For the three-month period ended March 31, 2024, net cash used in financing activities was $9.6 million as compared to $1.6 million in the 2023-period. In the 2024-period:
· dividends of $9.5 million were paid to shareholders;
· $0.1 million net repayments were made towards the Corporation’s syndicated credit facility;
· payments of $0.8 million were made towards lease liabilities; and
· 227,533 common shares were issued from treasury for proceeds of $0.7 million upon the exercise of share options.
*Capital Resources *
As of March 31, 2024, the Corporation had CAD $7.5 million drawn on its Canadian credit facilities, nothing drawn on its US operating facility, and a cash balance of $13.4 million. As at March 31, 2024, the Corporation had CAD $87 million and USD $20 million available from its credit facilities. The credit facilities are secured by substantially all of the Corporation’s assets and mature in December 2026.
As at March 31, 2024, the Corporation was in compliance with all its financial covenants. Under the syndicated credit agreement, in any given period, the Corporation’s distributions (as defined therein) cannot exceed its maximum aggregate amount of distributions limit as defined in the Corporation’s syndicated credit agreement. Distributions include, without limitation, dividends declared and paid, cash used for common shares purchased by the independent trustee in the open market and held in trust for potential settlement of outstanding retention awards, as well as cash used for common shares repurchased and cancelled under the NCIB.
*Cash Requirements for Capital Expenditures*
Historically, the Corporation has financed its capital expenditures and acquisitions through cash flows from operating activities, proceeds on disposition of drilling equipment, debt and equity. With $5 million carried over from the 2023 capital expenditure budget and the previously announced preliminary 2024 capital expenditure program of $70 million, PHX Energy anticipates spending $75 million of capital expenditures in 2024. Of the total expenditures, $47 million is targeted to be spent on growth and $28 million is expected to be allocated to maintain capacity in the existing fleet of drilling and other equipment and replace equipment lost downhole during drilling operations. The amount expected to be allocated towards replacing equipment lost downhole could increase should more downhole equipment losses occur throughout the year.
These planned expenditures are expected to be financed from cash flow from operating activities, proceeds on disposition of drilling equipment, cash and cash equivalents, and the Corporation’s credit facilities, if necessary. However, if a sustained period of market uncertainty and financial market volatility persists in 2024, the Corporation's activity levels, cash flows and access to credit may be negatively impacted, and the expenditure level would be reduced accordingly where possible. Conversely, if future growth opportunities present themselves, the Corporation would look at expanding this planned capital expenditure amount.
As at March 31, 2024, the Corporation has commitments to purchase drilling and other equipment for $21.8 million. Deliveries are expected to occur throughout the rest of the 2024-year.
*About PHX Energy Services Corp.*
PHX Energy is a growth-oriented, public oil and natural gas services company. The Corporation, through its directional drilling subsidiary entities provides horizontal and directional drilling services and technologies to oil and natural gas exploration and development companies principally in Canada and the US. In connection with the services it provides, PHX Energy engineers, develops and manufactures leading-edge technologies. In recent years, PHX Energy has developed various new technologies that have positioned the Corporation as a technology leader in the horizontal and directional drilling services sector.
PHX Energy’s Canadian directional drilling operations are conducted through Phoenix Technology Services LP. The Corporation maintains its corporate head office, research and development, Canadian sales, service and operational centers in Calgary, Alberta. In addition, PHX Energy has a facility in Estevan, Saskatchewan. PHX Energy’s US operations, conducted through the Corporation’s wholly-owned subsidiary, Phoenix Technology Services USA Inc. is headquartered in Houston, Texas. Phoenix USA has sales and service facilities in Houston, Texas; Midland, Texas; Casper, Wyoming; and Oklahoma City, Oklahoma. Internationally, PHX Energy has sales offices and service facilities in Albania, and an administrative office in Nicosia, Cyprus. The Corporation also supplies technology to the Middle East regions.
The common shares of PHX Energy trade on the Toronto Stock Exchange under the symbol PHX.
For further information please contact:
John Hooks, CEO; Michael Buker, President; or Cameron Ritchie, Senior Vice President Finance and CFO
PHX Energy Services Corp.
Suite 1600, 215 9th Avenue SW, Calgary Alberta T2P 1K3
Tel: 403-543-4466 Fax: 403-543-4485 www.phxtech.com*Condensed Consolidated Interim Statements of Financial Position*
(Stated in thousands of dollars, unaudited)
*March 31, 2024* December 31, 2023
ASSETS * * * *
Current assets: * * * * Cash and cash equivalents *$* *13,380* $ 16,433 Trade and other receivables *125,711* 121,334 Inventories *63,003* 63,173 Prepaid expenses *4,598* 2,409 Current tax assets *1,961* 3,691 Total current assets *208,653* 207,040
Non-current assets: * * Drilling and other long-term assets *146,789* 128,263 Right-of-use assets *26,764* 27,056 Intangible assets *13,771* 14,200 Investments *3,001* 3,001 Other long-term assets *1,429* 1,284 Deferred tax assets *2,993* 4,650 Total non-current assets *194,747* 178,454
Total assets *$* *403,400* $ 385,494
LIABILITIES AND SHAREHOLDERS' EQUITY * *
Current liabilities: * * Trade and other payables *$* *107,100* $ 100,438 Dividends payable *9,498* 9,453 Lease liability *3,376* 3,234 Total current liabilities *119,974* 113,125
Non-current liabilities: * * Lease liability *33,622* 33,972 Loans and borrowings *7,547* 7,564 Deferred tax liability *18,831* 16,822 Other *1,116* 4,042 Total non-current liabilities *61,116* 62,400
Equity: * * Share capital *223,628* 222,653 Contributed surplus *7,005* 7,168 Deficit *(37,739* *)* (45,695 ) Accumulated other comprehensive income *29,416* 25,843 Total equity *222,310* 209,969
Total liabilities and equity *$* *403,400* $ 385,494
*
*
*
Condensed Consolidated Interim Statements of Comprehensive Earnings*
(Stated in thousands of dollars except earnings per share, unaudited)
Three-month periods ended March 31, *2024* 2023
Revenue *$* *166,123* $ 166,022
Direct costs *129,044* 131,988
Gross profit *37,079* 34,034
Expenses:
Selling, general and administrative expenses *21,017* 15,556
Research and development expenses *1,202* 1,256
Finance expense *334* 667
Finance expense lease liability *541* 576
Other income *(8,757* *)* (9,979 ) *14,337* 8,076
Earnings before income taxes *22,742* 25,958
Provision for income taxes
Current *1,986* 2,724
Deferred *3,302* 817 *5,288* 3,541
Net earnings *17,454* 22,417
Other comprehensive income Foreign currency translation, net of tax *3,573* (107 )
Total comprehensive earnings *$* *21,027* $ 22,310
Earnings per share – basic *$* *0.37* $ 0.44
Earnings per share – diluted *$* *0.37* $ 0.42
*
*
*
Condensed Consolidated Interim Statements of Cash Flows*
(Stated in thousands of dollars, unaudited)
Three-month periods ended March 31, *2024* 2023
Cash flows from operating activities:
Earnings *$* *17,454* $ 22,417
Adjustments for:
Depreciation and amortization *10,319* 9,317
Depreciation and amortization right-of-use asset *849* 407
Provision for income taxes *5,288* 3,541
Unrealized foreign exchange (gain) loss *148* (26 )
Net gain on disposition of drilling equipment *(8,886* *)* (9,956 )
Equity-settled share-based payments *100* 101
Finance expense *334* 667
Finance expense lease liability *541* 576
Provision for inventory obsolescence *535* 269
Interest paid on lease liability *(541* *)* (576 )
Interest paid *(204* *)* (513 )
Income taxes paid *(185* *)* (134 )
Change in non-cash working capital *(14,585* *)* (22,185 )
Net cash from operating activities *11,167* 3,905
Cash flows from investing activities:
Proceeds on disposition of drilling equipment *12,301* 12,417
Acquisition of drilling and other equipment *(29,640* *)* (18,583 )
Change in non-cash working capital *12,469* 1,142
Net cash used in investing activities *(4,870* *)* (5,024 )
Cash flows from financing activities:
Dividends paid to shareholders *(9,453* *)* (7,636 )
Payments of lease liability *(830* *)* (762 )
Net proceeds from (net repayment of) loans and borrowings *(60* *)* 7,326
Proceeds from exercise of options *712* 266
Purchase of shares held in trust *-* (808 )
Net cash used in financing activities *(9,631* *)* (1,614 )
Net decrease in cash and cash equivalents *(3,334* *)* (2,733 )
Cash and cash equivalents, beginning of period *16,433* 18,247
Effect of movements in exchange rates on cash held *281* (12 )
Cash and cash equivalents, end of period *$* *13,380* $ 15,502
*
*
*Cautionary Statement Regarding Forward-Looking Information and Statements *
This document contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "could", "should", "can", "believe", "plans", "intends", "strategy" and similar expressions are intended to identify forward-looking information or statements.
The forward-looking information and statements included in this document are not guarantees of future performance and should not be unduly relied upon. These statements and information involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements and information. The Corporation believes the expectations reflected in such forward-looking statements and information are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements and information included in this document should not be unduly relied upon. These forward-looking statements and information speak only as of the date of this document.
In particular, forward-looking information and statements contained in this document include without limitation, the expectations related to future cash flows and the impact on the remaining distributable balance under ROCS, the Corporation’s intent to preserve balance sheet strength and continue to reward shareholders, including through its dividend program, the ROCS program and NCIB, PHX Energy's intentions with respect to the NCIB and purchases thereunder and the effects of repurchases under the NCIB, the anticipated industry activity and demand for the Corporation’s services and technologies in North America, the projected capital expenditures budget for 2024 ,and how the budget will be allocated and funded, the timeline for delivery of equipment on order, and the anticipated continuation of PHX Energy’s quarterly dividend program and the amounts of dividends.
The above are stated under the headings: “Financial Results”, “Dividends and ROCS”, “Capital Spending”, and “Capital Resources”. In addition, all information contained under the heading “Outlook” of this document may contain forward-looking statements.
In addition to other material factors, expectations and assumptions which may be identified in this document and other continuous disclosure documents of the Corporation referenced herein, assumptions have been made in respect of such forward-looking statements and information regarding, without limitation, that: the Corporation will continue to conduct its operations in a manner consistent with past operations; the general continuance of current industry conditions and the accuracy of the Corporation’s market outlook expectations for 2024 and in the future; that future business, regulatory and industry conditions will be within the parameters expected by the Corporation; anticipated financial performance, business prospects, impact of competition, strategies, the general stability of the economic and political environment in which the Corporation operates; the potential impact of pandemics, the Russian-Ukrainian war, Middle-East conflict and other world events on the global economy, specifically trade, manufacturing, supply chain, inflation and energy consumption, among other things and the resulting impact on the Corporation’s operations and future results which remain uncertain; exchange and interest rates, and inflationary pressures including the potential for further interest rate hikes by global central banks and the impact on financing charges and foreign exchange and the anticipated global economic response to concerted interest rate hikes; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labour and services and the adequacy of cash flow; debt and ability to obtain financing on acceptable terms to fund its planned expenditures, which are subject to change based on commodity prices; market conditions and future oil and natural gas prices; and potential timing delays. Although management considers these material factors, expectations, and assumptions to be reasonable based on information currently available to it, no assurance can be given that they will prove to be correct.
Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect the Corporation’s operations and financial results are included in reports on file with the Canadian Securities Regulatory Authorities and may be accessed through the SEDAR+ website (www.sedarplus.ca) or at the Corporation’s website. The forward-looking statements and information contained in this document are expressly qualified by this cautionary statement. The Corporation does not undertake any obligation to publicly update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
*Non-GAAP and Other Financial Measures*
*Non-GAAP Financial Measures and Ratios *
*a) **Adjusted EBITDA*Adjusted EBITDA, defined as earnings before finance expense, finance expense lease liability, income taxes, depreciation and amortization, impairment losses on drilling and other equipment and goodwill and other write-offs, equity-settled share-based payments, severance payouts relating to the Corporation’s restructuring cost, and unrealized foreign exchange gains or losses, does not have a standardized meaning and is not a financial measure that is recognized under GAAP. However, Management believes that adjusted EBITDA provides supplemental information to earnings that is useful in evaluating the results of the Corporation’s principal business activities before considering certain charges, how it was financed and how it was taxed in various countries. Investors should be cautioned, however, that adjusted EBITDA should not be construed as an alternative measure to earnings determined in accordance with GAAP. PHX Energy’s method of calculating adjusted EBITDA may differ from that of other organizations and, accordingly, its adjusted EBITDA may not be comparable to that of other companies.
The following is a reconciliation of earnings to adjusted EBITDA:
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023
Earnings: *17,454* 22,417
Add:
Depreciation and amortization drilling and other equipment *10,319* 9,317
Depreciation and amortization right-of-use asset *849* 407
Provision for income taxes *5,288* 3,541
Finance expense *334* 667
Finance expense lease liability *541* 576
Equity-settled share-based payments *100* 101
Unrealized foreign exchange loss (gain) *148* (26 )
Adjusted EBITDA *35,033* 37,000
*
*
*b) **Adjusted EBITDA Per Share - Diluted*Adjusted EBITDA per share - diluted is calculated using the treasury stock method whereby deemed proceeds on the exercise of the share options are used to reacquire common shares at an average share price. The calculation of adjusted EBITDA per share - dilutive is based on the adjusted EBITDA as reported in the table above divided by the diluted number of shares outstanding at the period end.
*c) **Adjusted EBITDA as a Percentage of Revenue*Adjusted EBITDA as a percentage of revenue is calculated by dividing the adjusted EBITDA as reported in the table above by revenue as stated on the Condensed Consolidated Interim Statements of Comprehensive Earnings.
*d) **Adjusted EBITDA Excluding Cash-settled Share-based Compensation Expense*Adjusted EBITDA excluding cash-settled share-based compensation expense is calculated by adding cash-settled share-based compensation expense to adjusted EBITDA as described above. Management believes that this measure provides supplemental information to earnings that is useful in evaluating the results of the Corporation’s principal business activities before considering certain charges, how it was financed, how it was taxed in various countries, and without the impact of cash-settled share-based compensation expense that is affected by fluctuations in the Corporation’s share price.
The following is a reconciliation of earnings to adjusted EBITDA excluding cash-settled share-based compensation expense:
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023
Earnings: *17,454* 22,417
Add:
Depreciation and amortization drilling and other equipment *10,319* 9,317
Depreciation and amortization right-of-use asset *849* 407
Provision for income taxes *5,288* 3,541
Finance expense *334* 667
Finance expense lease liability *541* 576
Equity-settled share-based payments *100* 101
Unrealized foreign exchange loss (gain) *148* (26 )
Cash-settled share-based compensation expense *5,710* 1,374
Adjusted EBITDA excluding cash-settled share-based compensation expense *40,743* 38,374
*
*
*e) **Adjusted EBITDA Excluding Cash-settled Share-based Compensation Expense as a Percentage of Revenue*Adjusted EBITDA excluding cash-settled share-based compensation expense as a percentage of revenue is calculated by dividing adjusted EBITDA excluding cash-settled share-based compensation expense as reported above by revenue as stated on the Condensed Consolidated Interim Statements of Comprehensive Earnings.
*f) **Gross Profit as a Percentage of Revenue Excluding Depreciation & Amortization*Gross profit as a percentage of revenue excluding depreciation & amortization is defined as the Corporation’s gross profit excluding depreciation and amortization divided by revenue and is used to assess operational profitability. This Non-GAAP ratio does not have a standardized meaning and is not a financial measure recognized under GAAP. PHX Energy’s method of calculating gross profit as a percentage of revenue may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of revenue, direct costs, depreciation and amortization, and gross profit to gross profit as a percentage of revenue excluding depreciation and amortization:
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023
Revenue *166,123* 166,022
Direct costs *129,044* 131,988
Gross profit *37,079* 34,034
Depreciation & amortization drilling and other equipment (included in direct costs) *10,319* 9,317
Depreciation & amortization right-of-use asset (included in direct costs) *849* 407 *48,247* 43,758
Gross profit as a percentage of revenue excluding depreciation & amortization *29**%* 26%
*
*
*g) **SG&A Costs Excluding Share-Based Compensation as a Percentage of Revenue*SG&A costs excluding share-based compensation as a percentage of revenue is defined as the Corporation’s SG&A costs excluding share-based compensation divided by revenue and is used to assess the impact of administrative costs excluding the effect of share price volatility. This Non-GAAP ratio does not have a standardized meaning and is not a financial measure recognized under GAAP. PHX Energy’s method of calculating SG&A costs excluding share-based compensation as a percentage of revenue may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of SG&A costs, share-based compensation, and revenue to SG&A costs excluding share-based compensation as a percentage of revenue:
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023
SG&A Costs *21,017* 15,556
Deduct:
Share-based compensation (included in SG&A) *5,810* 1,475 *15,207* 14,081
Revenue *166,123* 166,022
SG&A costs excluding share-based compensation as a percentage of revenue *9**%* 8%
*
*
*Capital Management Measures*
*a)* *Funds from Operations*Funds from operations is defined as cash flows generated from operating activities before changes in non-cash working capital, interest paid, and income taxes paid. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses funds from operations as an indication of the Corporation’s ability to generate funds from its operations before considering changes in working capital balances and interest and taxes paid. Investors should be cautioned, however, that this financial measure should not be construed as an alternative measure to cash flows from operating activities determined in accordance with GAAP. PHX Energy’s method of calculating funds from operations may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of cash flows from operating activities to funds from operations:
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023
Cash flows from operating activities *11,167* 3,905
Add (deduct):
Changes in non-cash working capital *14,585* 22,185
Interest paid *204* 513
Income taxes paid *185* 134
Funds from operations *26,141* 26,737
*b)* *Excess Cash Flow*Excess cash flow is defined as funds from operations (as defined above) less cash payment on leases, growth capital expenditures, and maintenance capital expenditures from downhole equipment losses and asset retirements, and increased by proceeds on disposition of drilling equipment. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses excess cash flow as an indication of the Corporation’s ability to generate funds from its operations to support operations and grow and maintain the Corporation’s drilling and other equipment. This performance measure is useful to investors for assessing the Corporation’s operating and financial performance, leverage and liquidity. Investors should be cautioned, however, that this financial measure should not be construed as an alternative measure to cash flows from operating activities determined in accordance with GAAP. PHX Energy’s method of calculating excess cash flow may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of cash flows from operating activities to excess cash flow:
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023
Cash flows from operating activities *11,167* 3,905
Add (deduct):
Changes in non-cash working capital *14,585* 22,185
Interest paid *204* 513
Income taxes paid *185* 134
Cash payment on leases *(1,371* *)* (1,339 ) *24,770* 25,398
Proceeds on disposition of drilling equipment *12,301* 12,417
Maintenance capital expenditures to replace downhole equipment losses and asset retirements *(5,416* *)* (8,628 )
Net proceeds *6,885* 3,789
Growth capital expenditures *(24,224* *)* (9,955 )
Excess cash flow *7,431* 19,232
*c)* *Working Capital*Working capital is defined as the Corporation’s current assets less its current liabilities and is used to assess the Corporation’s short-term liquidity. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses working capital to provide insight as to the Corporation’s ability to meet obligations as at the reporting date. PHX Energy’s method of calculating working capital may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of current assets and current liabilities to working capital:
(Stated in thousands of dollars)
*March 31, 2024* December 31, 2023
Current assets *208,653* 207,040
Deduct:
Current liabilities *(119,974* *)* (113,125 )
Working capital *88,679* 93,915
*d)* *Net Debt (Net Cash)*Net debt is defined as the Corporation’s loans and borrowings less cash and cash equivalents. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses net debt to provide insight as to the Corporation’s ability to meet obligations as at the reporting date. PHX Energy’s method of calculating net debt may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of loans and borrowings and cash and cash equivalents to net debt:
(Stated in thousands of dollars)
*March 31, 2024* December 31, 2023
Loans and borrowings *7,547* 7,564
Deduct:
Cash and cash equivalents *(13,380* *)* (16,433 )
Net debt (Net cash) *(5,833* *)* (8,869 )
*e)* *Net Capital Expenditures*Net capital expenditures is comprised of total additions to drilling and other long-term assets, as determined in accordance with IFRS, less total proceeds from disposition of drilling equipment, as determined in accordance with IFRS. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses net capital expenditures to provide insight as to the Corporation’s ability to meet obligations as at the reporting date. PHX Energy’s method of calculating net debt may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of additions to drilling and other equipment and proceeds from disposition of drilling equipment to net capital expenditures:
(Stated in thousands of dollars)
Three-month periods ended March 31, *2024* 2023
Growth capital expenditures *24,224* 9,955
Maintenance capital expenditures from asset retirements *4,141* 4,857
Maintenance capital expenditures from downhole equipment losses *1,275* 3,771 *29,640* 18,583
Deduct:
Proceeds on disposition of drilling equipment *(12,301* *)* (12,417 )
Net capital expenditures *17,339* 6,166
*f)* *Remaining Distributable Balance under ROCS*Remaining distributable balance under ROCS is comprised of 70% of excess cash flow as defined above less repurchases of shares under the Normal Course Issuer Bids in effect during the period and less the dividends paid to shareholders during the period. This financial measure does not have a